AUD/USD – Aussie Edges Lower, RBA Rate Announcement Looms

The Australian dollar has posted slight losses to start off the week. In the North American session, AUD/USD is trading at 0.7560. On the release front, Australian numbers were mixed. The AIG Manufacturing Index came in at 56.4 points, while HIA New Home Sales climbed 8.2%. The news was not as positive on the inflation front, as the MI Inflation Gauge declined 0.3%. Later in the day, we’ll get a look at Building Approvals and Trade Balance, followed by the all-important RBA rate announcement. The host of key events means that traders should be prepared for volatility from AUD/USD. Over in the US, the ISM Manufacturing PMI came in at 52.6 points, short of expectations.

All eyes are on the RBA, as the markets await the bank’s upcoming rate announcement. The markets are expecting a quarter point cut, from 1.75% to 1..50%, which would mark an all-time low. If the RBA does lower rates, it would mark the second rate cut in just four months. The bank remains concerned about low inflation levels, and has continuously put the markets on notice that it is prepared to lower rates if inflation doesn’t move higher. Although CPI gained 0.4% in the second quarter, this may not prove to be a sufficient improvement for the RBA. Another factor favoring a cut is that if the RBA disappoints the markets, the result will be a loss of credibility, which the bank is certainly keen to avoid.

The US dollar was broadly lower on Friday, following a surprisingly soft US GDP report. The Australian dollar took advantage and gained 80 points. US Preliminary GDP for the second quarter was projected at 2.6%, but posted a much smaller gain of 1.6%. The soft reading not only pushed the dollar lower, but has dampened enthusiasm regarding a rate hike by the Federal Reserve, which last week stayed on the sidelines yet again. On Monday, FOMC William Dudley, a close ally of Janet Yellen, said that the Brexit fallout posed a risk to the US economy and urged the Fed to proceed with caution before raising interest rates. The US will release wage growth and nonfarm payrolls later in the week, and these key employment numbers will be carefully monitored by the Fed as it mulls over a possible rate hike. If these releases do not meet expectations, the likelihood of a move in September will sharply decrease.

AUD/USD Fundamentals

Sunday (July 31)

• 19:30 Australian AIG Manufacturing Index. Actual 56.4
• 21:00 Australian HIA New Home Sales. Estimate 8.2%
• 21:00 Australian MI Inflation Gauge. Estimate -0.3%
• 21:15 FOMC Member William Dudley Speaks

Monday (August 1)

• 9:45 US Final Manufacturing PMI. Estimate 52.9. Actual 52.9
• 10:00 ISM Manufacturing PMI. Estimate 53.1. Actual 52.6
• 10:00 US Construction Spending. Estimate 0.5%. Actual -0.6%
• 10:00 ISM Manufacturing Prices. Estimate 61.0. Actual 55.0
• Tentative – US Loan Officer Survey
• 21:30 Australian Building Approvals. Estimate 0.9%
• 21:30 Australian Trade Balance. Estimate -2.00B

Upcoming Key Events

Tuesday (August 2)

• 00:30 Australian Cash Rate. Estimate 1.50%
• 00:30 Australian Rate Statement

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Monday, August 1, 2016

AUD/USD August 1 at 11:25 EDT

Open: 0.7587 High: 0.7615 Low: 0.7550 Close: 0.7562

AUD/USD Technical

• AUD/USD showed limited movement in the Asian session. The pair lost ground in European trade and is unchanged in the North American session
• 0.7560 remains fluid. It is currently a weak support line
• 0.7701 is providing strong resistance
• Current range: 0.7560 to 0.7701

Further levels in both directions:

• Below: 0.7560, 0.7440, 0.7339 and 0.7251
• Above: 0.7701, 0.7835 and 0.7938

OANDA’s Open Positions Ratio

AUD/USD ratio is almost unchanged on Monday. Long and short positions are close to an even split, indicating a lack of trader bias as to what direction AUD/USD will take next.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.